Working the wrong formula?

The announcement earlier this month that the International Monetary Fund (IMF) had advised the St Lucia government to control spending — particularly on wages — and to curtail growth of its overall debt serves to underscore the turbulent economic period confronting Caribbean states in their quest to survive a changing global environment.

The St Lucia economy, like others in the English-speaking Caribbean, suffered several exogenous shocks during 2001 and 2002. The September 2001 terrorist attacks in the United States were felt around the region through decreased revenue from the vital tourism sector and harsh weather patterns have hit the agriculture sector hard making life much more difficult for Caribbean nations. St Kitts-Nevis Prime Minister Dr Denzil Douglas addressing the annual meeting of the Board of Governors of the Caribbean Development Bank (CDB) this week warned of the “possible long-term consequences” of these external situations. “In particular, the many external shocks that we continue to face have masked a fundamental failure in many of our economies — our programmes of economic transformation and change have not kept pace with the ever accelerating wheels of globalisation,” he said.

The banana-producing Windward Islands have recorded a drop in exports for the first quarter of this year compared to last year, with earnings being  put at EC$22.2 million (US$8.48 million) down from EC$31.3 million (US$11.9 million) for the first three months of last year. In fact, one year after it went cap in hand to its Caribbean neighbours, Dominica has not been able to reduce its US$18.4 million fiscal deficit and climb out of the economic rut that has made life harder for its estimated 80,000 citizens. Even an IMF- administered Stabilisation and Adjustment programme to reduce the deficit by 50 percent seemed to have failed. Following a mid-term review of the programme in February, the IMF, though complimentary of the Pierre Charles administration’s attempts to improve its economic fortunes, said another major effort was now needed to contain the deficit. “The problem comes back to the issue of lack of cash and the need to deal with it,” says the IMF Division Chief for the Caribbean Division I Jorge Guzman. While he does not believe that the government’s efforts were over ambitious, he concedes, “What is happening here is that Dominica made an effort, but the situation was much worse than government had anticipated.” And he has had bad news for Dominicans, saying that the Charles administration will have to implement other measures to deal with the worsening situation.

The new measures have forced public workers on to the streets in Roseau in protest, while the main opposition United Workers Party (UWP) tried unsuccessfully to get the Charles administration to seek a new mandate from the population. Last weekend Prime Minister Charles travelled to Washington with the aim of trying to convince the IMF to accept less stringent measures for reviving the ailing Dominica economy. An IMF team is due in Dominica this week for further talks. The smaller islands of the Eastern Caribbean have already agreed on the need to establish their own economic union as a means of preparing themselves for the future.
“Combining the resources of our individual states into a single economic space will multiply economic activity in each our countries to the benefit of all,” Antigua and Barbuda’s Prime Minister Lester Bird said at the OECS summit last month. But the economic problems are not confined to the smaller states of the Caribbean Community (CARICOM). In fact some of the Caribbean’s steady performers have been registering economic problems even as the region contemplates establishing its own single market and economy by 2005.

Barbados, where a general election is scheduled for May 21, has experienced economic declines of 0.6 percent last year and 2.8 percent in 2001. For calendar year 2003, the fiscal deficit is projected to decrease to 3.9 per cent of GDP, and 4.7 per cent of GDP for the fiscal year 2003/2004. Bridgetown has blamed the September 11, 2001 terrorist attacks for the decline. “Despite the achievement of positive real economic growth in the first quarter of 2003, the outlook for the remainder of the year largely depends on the changes in expectations in international markets regarding daily events in Iraq,” says Barbados Central Bank Governor Dr Marion Williams. She says assuming that a second-quarter end to substantive armed conflict will sufficiently spur business and consumer confidence in Barbados’ major trading partners, the economy is projected to expand within the range of zero per cent and one per cent for 2003.

However, Trinidad and Tobago stands out among those countries that have managed to remain on a path of growth, despite a loss of momentum suffered in the fourth quarter of 2002. Last year, the economy registered a ninth consecutive year of economic expansion, the Central Bank has reported. The Bank said that real Gross Domestic Product (GDP) grew by just over three per cent, largely on the strength of the energy-based industries where real value added rose by 10.7 per cent. The Bank was even predicting “robust growth in Trinidad and Tobago in 2003 and 2004” even as it acknowledged that the international outlook has weakened and become even more uncertain as a result of the war in Iraq. The PJ Patterson administration in Jamaica has had to tread carefully amid warnings from labour leaders of “a wave of social unrest” in the near future as a result of the worsening economic fortunes that have seen the local currency continue its precipitious slide against the major world currencies including United States dollar and the British pound sterling.

Finance Minister Omar Davies has had to perform an astonishing balance role in recent weeks, placating local interest while satisfying the international communities that the government is exercising fiscal prudence. He has promised to gradually reduce the fiscal deficit, which stood at 7.7 percent of GDP at the end of the 2002-3 fiscal year in March. The target is for a deficit of five to six percent this fiscal year. However Jamaica’s biggest worry lies with its staggering debt to GDP ratio of 152 per cent, with debt servicing this fiscal year consuming 65 per cent of total spending in the US4.7-billion-dollar budget. Further, Jamaica’s economic performance has not been helped by the advisory from the US firm Prudential that last month warned investors against Jamaican bonds. It was a similar position adopted by the credit rating firm Credit Sights. Trade union officials in Jamaica believe that the PJ Patterson administration and other Caribbean governments must start a process of dialogue to help balance their fiscal programmes with their countries’ social needs. President of the National Workers Union (NWU) Clive Dobson believes that major stake-holders like the trade unionists, the employers’ federation, manufacturers, government, NGOs need to begin some serious dialogue in order to try to find a solution to the economic problem.